FRANKFURT: German business sentiment unexpectedly fell in June, a key survey showed Monday, pouring cold water on hopes Europe’s biggest economy is on course for a strong rebound. The Ifo institute’s confidence barometer, based on a survey of around 9,000 companies, declined to 88.6 points from 89.3 in May.

It was lower than a forecast of 89.8 points from analysts surveyed by financial data firm FactSet. “Sentiment has deteriorated at companies in Germany,” said Ifo president Clemens Fuest. “The German economy is having difficulty overcoming stagnation.”

Faced with surging inflation, a manufacturing downturn and weakness in key trading partners, Germany was the only major advanced economy to shrink in 2023. A pick-up is expected and indicators had been improving in early 2024, with the Ifo survey generally on an upward trend - meaning Monday’s reading came as a setback. The fall was driven by worsening expectations among companies while their assessment of the current situation was unchanged.

The readings for the manufacturing sector and trade deteriorated although there were improvements in the service sector and construction, the survey showed.

“The upturn in business sentiment is faltering,” said Fritzi Koehler-Geib, chief economist at public lender KfW. Economic risks “remain high,” she said. “This also includes the increased support for populist parties at home and abroad, as the European elections at the beginning of the month showed.” The survey contrasted with recent improvements in forecasts.

The German government in April nudged up its 2024 growth prediction to 0.3 percent, from 0.2 percent previously, while Ifo itself has slightly upgraded its forecast. ING economist Carsten Brzeski sought to sound a positive note.

“Despite today’s cold shower, the German economy should still gain some momentum over the summer months,” he said. “It will take a bit longer than we thought but strong wage growth should still fuel a cautious recovery in private consumption.” — AFP